It is now 12 months since the Jackson reforms introduced the concept of Qualified One Way Costs Shifting (QOCS) to personal injury claims. The concept itself was simple: a defendant must pay the successful claimant’s costs, but a claimant will not be required to pay a successful defendant’s costs unless one of a small number of exceptional circumstances apply.
In the context of fraud claims handling, the key exception – introduced specifically to ensure that the fraudulent claimant did not have a free reign to ‘have a go’ at pursuing a fraudulent claim without any costs risk – is that of ‘fundamental dishonesty’. Twelve months on from the introduction of this somewhat nebulous concept, are we any closer to understanding what it really means and how to tackle the issue in practice?
Ideally, we would be able to go to the rules themselves for guidance. The exceptions to QOCS are set out within CPR 44.16, with ‘fundamental dishonesty’ set out within CPR 44.16(1), which states; “Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.” Unfortunately that is it, the rules offer no guidance at all on what fundamental dishonesty really means.
If the rules don’t tell us explicitly what fundamental dishonesty means, what practical considerations do we need to consider?
We perhaps may take it as read that staged, contrived and induced accidents (indeed any claim where we are saying that the entire event from which the claim arises was a mechanism wholly aimed at facilitating a fraudulent claim) will be fundamentally dishonest. But what about those other claims where we cannot say that the underlying incident itself did not occur, or was not a legitimate incident? The wording of Part 44.16(1) has caused some commentators to validly ask questions such as:
• Is it ok for a claim to be fairly dishonest?
• Is it ok for a claim to be quite dishonest?
One would assume not, although it is likely to be an argument raised by the claimant’s counsel! It must be the case that a bogus passenger’s claim will be fundamentally dishonest, however, what about that of a genuine occupant supporting the bogus passenger? It is perhaps the case that, at first blush, it cannot be said that the claim is fundamentally dishonest, therefore one would assume that the case of Shah v Ul-Haq & Others [2009] EWCA Civ 542 would remain good law. That being the case, to follow Ul-Haq and displace QOCS, it must be that the ‘genuine’ claim will be seen as fundamentally dishonest.
In relation to low speed impact cases, we await caselaw with interest. It seems unlikely that it benefits either side to plead, or be asked to plead fundamental dishonesty in such cases, and potentially have the claim allocated to the multi-track. To do so would leave a claimant open to costs risk for the defendant’s costs and remove the claimant’s costs from the fixed costs regime. Perhaps, the only party to benefit from a pleading of fundamental dishonesty in respect of a low speed impact case would be the claimant’s solicitors, who would receive increased costs if and when successful.
This also remains a moot point, although the CPR suggests that we would have to, as CPR 44PD 12A states:
12.4 In a case to which rule 44.16(1) applies (fundamentally dishonest claims) –
(a) the court will normally direct that issues arising out of an allegation that the claim is fundamentally dishonest be determined at the trial;
This clearly implies that the defendant must plead fundamental dishonesty. However, certain counsel chambers have made a stock decision not to do so on the premise that, as yet, there is no definition of what this phrase means, and until such times as the courts give guidance on the concept they do not believe it appropriate to formally plead the point. Again, therefore the position remains uncertain.
We all know from our practical experiences that only a small percentage of fraud cases reach trial and that a considerable volume of successful fraud resolutions are delivered through the claimant abandoning his claim through discontinuance.
Under the Jackson reforms, a claimant is able to discontinue his claim without incurring the defendant’s costs. However, the position is different if the claimant has discontinued in order to avoid a finding of fundamental dishonesty and a consequent costs order. In such scenarios, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside. However, whilst the rules again provide a potential remedy, we question whether in practice there is likely to be a viable solution in all claims.
Firstly, is this likely to find favour with the court in the current climate of court efficiency and stream-lined processes? We would find it an oxymoron for the rules to set out a remedy that requires a defendant to pursue an application in order to achieve that remedy, only for defendants to be criticised for using judicial time in pursuing such applications. But then stranger things have happened in recent judicial and procedural times!
A larger hurdle would appear to be the fact that to pursue such an application will inevitably require the court to make an assessment of the evidence of the case – and effectively a trial of the evidence - without there being a trial. These will be hearings determined in chambers, not full trials and with no oral or formal expert evidence. Essentially an assessment of the strength of evidence on paper, with the burden of proof on the defendant to prove fundamental dishonesty. That is a rather high watermark solely to secure the remedy of dis-applying the QOCS protection afforded to a claimant that has already decided to abandon his claim, and who in doing so will almost certainly have been dropped by any solicitors or costs-insurer (ATE or BTE) that may have been sitting in the background, notionally offering costs protection.
However, this is precisely what happened in the case of Gosling v Screwfix Direct & Another, which was heard at the Cambridge county court before HHJ Maloney on 29 April 2014, and which, at the time of writing, remains an unreported case. This was a gross exaggeration claim, in which the claimant suffered a genuine injury as a result of falling from an allegedly defective ladder. Although it was accepted that he had suffered some injury, the case was contested on grounds of liability, causation and quantum – and it was specifically alleged that the claimant had grossly exaggerated the extent of his alleged injury and losses, with surveillance evidence being key.
A week before trial, the claimant discontinued his claim, contesting that QOCS applied. The defendant therefore applied for an order pursuant to 44.16 CPR to disallow the QOCS protection and for permission to enforce the entitlement to costs following the discontinuance on the grounds that the claim was fundamentally dishonest.
In assessing the application, HHJ Maloney found that, despite the claimant suffering some level of injury, he had significantly exaggerated the extent and impact of those alleged injuries. As such he found that the claimant had been dishonest. In assessing the extent of that dishonesty, he considered that the claimant had sought to increase the value of his claim by approximately 50% from its true value. As such he found that the dishonesty was not merely, “incidental,” to the claim, but went to the, “whole or substantial part of the claim,” and therefore that the claimant had been, “fundamentally dishonest.”
This case clearly shows that, despite the high watermark set, the courts are willing to entertain defendant’s applications in appropriate cases. However, this is one case alone – and one in which the exaggeration was both significant and clear, with a 50% exaggeration of a claim that already had significant value. What is not yet clear is how the courts will approach the application of the principals in lower value claims, where the extent of the fraud may well be deemed, “incidental,” to the overall claim.
In those circumstances, we anticipate that such applications will be relatively few in practice and only made where there is compelling evidence (if not clear cut surveillance evidence – which would potentially limit the application to large loss / high value claims - then perhaps a confession, then otherwise potentially regarded as sufficient to support a tort of deceit claim) and there is clear evidence that the claimant will have sufficient means to satisfy such judgment if obtained.
Quite simply, at this stage the position remains unclear. Whilst the unreported Gosling v Screwfix gives some guidance, it also carries risks – in particular of the 50% exaggeration becoming an arbitrary and arguably dangerous threshold that needs to be overcome in order for the principals to be applied. It should therefore, be viewed as a starting point and nothing more, with clearly further judicial interpretation required as to what is meant by dishonesty that is, “incidental,” as compared to that which goes to, “a substantial part of the claim.”
We can therefore do no better than refer to the words of Lord Kerr of the Supreme Court when he spoke at the September 2013 IFIG conference in Belfast. When asked by the Keoghs representative what fundamental dishonesty really meant, his reply was telling:
“Unfortunately this is one of those areas where the rule-makers thought that they would be making life for practitioners straightforward, but in reality they have made it harder for everyone. In my opinion: You will know it when you see it, but it is impossible to adequately describe it or to write it down. It is therefore a concept that will only be determined through precedent; in reality by either the Court of Appeal or Supreme Court. In those circumstances it is likely to come before me, and on that note I had better not say any more about it…”
So there you have it. One of the most senior judges in the land has told it as it is: no-one really knows what fundamental dishonesty really means, and whilst HHJ Maloney has started us upon the journey of properly defining the issue, the reality is that unless and until a case appears before the Court of Appeal or Supreme Court, the matter is likely to remain a largely subjective matter and therefore quite likely to result in a plethora of different and contradictory decisions, giving rise to satellite litigation.
At best we are a few baby steps along to path to understanding fundamental dishonesty actually means and how this will be applied in practice. At present, it is perhaps fair to say that at this stage a pleading of fundamental dishonesty would sit alongside, if not replace an ‘old’ pleading of fraud, and be dealt with in the same manner by the courts. It is however, safe to say that fundamental dishonesty is likely to become something of a moveable feast and there will be satellite litigation to define the term. Lord Kerr has clearly opened the invitation to practitioners to select the right case, and drive it to the Supreme Court – in the same way that Summers v Fairclough Homes was pursued in order to test a key point of principal.
As such, it will be down to insurers, and their suppliers, to identify the right cases on which to pursue this key point of principal. They will need to have the appetite to pursue that case all the way to the Supreme Court to obtain judicial guidance, once and for all, on what fundamental dishonesty really means and how it should be applied in practice. For such a fundamentally important concept, this is a major challenge: identifying and pursuing the right case will be of crucial importance, not just for the individual parties concerned, but for the industry overall. It is for this reason that we are proactively working with a number of clients to identify that model case.
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